EOT Position Update – May 23, 2012
May 23, 2012
Market Snapshot
This market has been nothing short of erratic.
These days I’m rarely surprised by market movement. However, I am surprised at the repeated negative behavior that has existed over this short time frame.
Twelve of the last fourteen days, the S&P has been in the red and that occurrence has not showed itself since 1970.
Obviously this market is in a serious downtrend.
Allow me to explain some of the indications that make up a downtrend…
For one, the S&P 500 is off more than 8% from the highs reached on April 2nd. Technically, this is correction mode.
Commodities have been blasted. This tells us that demand is weakening all over the globe.
And the recent market leader, the tech sector, has corrected significantly. Beloved Apple (APPL) is off 17% from its all-time highs. And this stock holds big weight in the S&P 500.
For these reasons, the market can’t seem to mount a rally.
But wait, here’s more… The market seems to be predicting even more trouble on the horizon.
Bond yields are at historic lows. Meaning investors would rather put their money in safe investments earning little or no interest than play the equity market.
But there’s one glimmer of hope…
The US Dollar is at its highest levels in years. In other words, the US is the best house in the worst neighborhood. And even though the market has taken a beating, investors still believe it’s the safest country to invest in.
Bottom line…
One thing that needs to be stressed is, we don’t know what’s going to happen next.
We need to remain defensive and keep our eyes open for opportunities that are related to domestic growth and less related to overseas exposure.
Let’s move onto the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
CSCO August 2012 $16 Calls
Cisco Systems has held up very well after its earnings announcement in early May. Our call options are just about even. This is impressive considering the blood bath in the overall market lately. When this market does turn to the upside, CSCO will follow suit, giving us an opportunity for larger gains. For now, CSCO is a hold. Remember, we want CSCO to move higher. Resistance is at $18 and $20, while support is at $15.50 and $14.75.
WMT September 2012 $57.50 Calls
Wal-Mart has continued to hold up well during this market downtrend. As a consumer staple stock, investors have continued to buy this company as a dividend play. As a matter of fact, after Wal-Mart’s recent earnings, it has just broken through our first resistance level of $62.50. So conservative investors are clear to take profits. Congratulations on your incredible 160% gain in only three weeks. With an eternity until expiration, aggressive investors can hold on for even larger gains. Remember that we want this stock to move higher. Resistance is now at $65, while support remains at $55 and again at $52.50.
Category: EOT Update